Turkey Bond Yields Jump Most in One Week on Syria Shelling

Prime Minister Recep Tayyip Erdogan
Lawmakers convened in Ankara for an emergency debate to grant Prime Minister Recep Tayyip Erdogan’s government a one-year mandate for possible military incursions into Syria. Photographer: Adem Altan/AFP/Getty Images

Turkish bond yields headed for the biggest jump in more than a week and default swaps rose after Turkey fired into Syrian territory in retaliation to shelling by its neighbor yesterday that killed five people.

Concern that Turkey’s 720,000-strong military will be dragged into a conflict led yields on two-year benchmark debt four basis points, or 0.04 percentage point, higher to 7.61 percent at the close in Istanbul, the most since Sept. 26. Credit default swaps advanced for the first time in six days by three basis points to 153, data compiled by Bloomberg show.

The parliament voted by 320 to 129 after a 3 1/2-hour debate in favor of a one-year mandate for the government to order military operations outside Turkey, according to the assembly’s press office. Turkey, which retaliated with artillery attacks on Syrian military targets, has backed the rebels fighting to oust President Bashar al-Assad and allowed them to use bases inside Turkey. It has deployed extra troops near the border since June, when Syrian forces downed a Turkish plane.

“The whole picture is unpleasant and must be monitored very carefully,” Suha Yaygin, deputy head of emerging markets at Toronto Dominion Bank in London, said in e-mailed comments. “It is good to be cautious even though Turkey has strong fundamentals.”

Lira Losses

The lira erased earlier losses of as much as 0.4 percent and traded 0.3 percent stronger at 1.7990 per dollar. It lost 0.7 percent yesterday, the biggest depreciation since Aug. 1. Deputy premier Besir Atalay said Syria has conveyed regrets and assurances to United Nations officials that such an incident won’t be repeated. “Turkey’s message has been received,” Foreign Minister Ahmet Davutoglu said.

Turkish artillery units fired yesterday and today at Syrian military targets in response to the cross-border shelling. Fourteen Syrian soldiers were killed, Al Arabiya television said.

The extra yield investors demand to hold Turkey’s dollar-denominated debt over U.S. Treasuries rose 9 basis points to 226 in Istanbul today, according to JPMorgan’s EMBI Global Index. The emerging-market average dropped one basis point to 299.

The Turkish currency has gained 5 percent this year, rebounding from its record low of 1.9224 against the dollar on Dec. 28. Yields on the country’s dollar bonds maturing in January 2030 jumped six basis points today to 4.34 percent.

“If it becomes clear that Turkey will step up military actions, we will quickly reach the 1.85 level,” Thu Lan Nguyen, a currency strategist at Commerzbank AG in Frankfurt, said in e-mailed comments. “A war will definitely deter international investors, and Turkish assets will be sold across the board.”

Turkey has been deploying tanks and armored personnel carriers in the area. Syria’s uprising has morphed into a civil war that’s spilling across its borders, with shells and gunfire now following tens of thousands of refugees into Turkey, Lebanon and Jordan.

This is “clearly a short-term risk for Turkey and Turkish assets, but also a shout to the rest of the world that the situation in Syria is untenable,” Simon Quijano-Evans, ING Groep NV’s London-based head of emerging-market research for Europe, the Middle East and Africa, said in a note today.

Stocks extended losses today, with the Istanbul Stock Exchange National 100 sliding 0.5 percent at 66,545.44 for a second day to the lowest in almost a week.

Before it's here, it's on the Bloomberg Terminal. LEARN MORE